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Marinos Koullapis FCCA

Audit, Tax, Accounting Services

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Cyprus Tax Incentives – Individuals

  1. Cyprus tax residency

An individual is considered to be a Cyprus tax resident provided that he/she stays in Cyprus for more than 183 days per calendar year. See below however for the conditions to become Cyprus tax resident by staying only 60 days in Cyprus. 

  1. Taxes for salaries

Individuals in Cyprus are subject to the following obligations in relation to their salary and for certain benefits in kind:

a. Income tax.
b. General Health Contributions.
c. Social insurance funds’ contributions.

  1. The Income tax scales are as follows:

Zero to 19.500      0%
19.501-28.000     20%
28.001-36.300     25%
36.301-60.000     30%
60.001 and over  35%

  1. Tax incentives for individuals coming from abroad

a.  50% deduction from the salary
Fifty percent of the salary of a natural person, from a first employment exercised in Cyprus is except from income tax, provided
a. the salary is more than 55.000 Euro per year,
b. he/she was non Cyprus tax resident for at least 10 consecutive years immediately before the beginning of the employment and
c. the beginning of first employment in Cyprus is from 1st January 2022 and afterwards.
The deduction is applicable for 17 tax years, counting from the year the employment begins.
If the above deduction is claimed, then the deduction in paragraph (b) below cannot be claimed.
(This is the new article 8.23A and the previous article 8.23 is still applicable).

b.  20% deduction from the salary
Twenty percent of the salary of a natural person or 8.550 Euro whichever is lower, from a first employment exercised in Cyprus is except from income tax, provided that

a. he/she immediately before the beginning of his/her employment in Cyprus was employed for 3 consecutive years by a non-Cyprus tax resident employer outside Cyprus and
b .the first employment in Cyprus begins after 26.7.2022 up to the year 2027.
The deduction applies for 7 tax years beginning as from the tax year which follows the year of employment in Cyprus.
(This is the new article 8.21A and the previous article 8.21 is still applicable).

c.  Exception for the overseas employment salary of a Cyprus tax resident
The salary of a Cyprus tax resident employee from employment exercised overseas for a total period in the tax year of more than 90 days, with an employer who is a non- Cyprus tax resident or at a permanent establishment overseas of an employer who is a Cyprus tax resident, is except from Cyprus income tax.

  1. Tax residence under the 60 days rule

When a person does not reside in any other State for one or more periods which in aggregate exceed 183 days within a tax year and he/she is not tax resident of any other State for the same tax year, is considered a Cyprus Tax Resident in the said tax year, provided the following conditions are satisfied:

a. Resides in Cyprus for at least 60 days in the tax year,
b. Exercises any business in Cyprus and/or is employed in Cyprus and/or holds an officer’s position with a Cyprus tax resident person. The business and/or employment and/or office position shall be maintained as at 31st December of the tax year, in other words they  shall not be terminated before the end of the tax year) and
c. Maintains a permanent residence in Cyprus which is owned or rented by that person.

  1. Tax resident but non-domiciled and exemption for certain types of other income

For persons that are Cyprus tax residents but non- domiciled there are also other tax exemptions in relation to dividends and passive interest, for 17 tax years. An example of non-domiciled is the case of a person who was born outside Cyprus and obtained domicile of origin from that country and lived all his life outside Cyprus.
Thus an individual who is a tax resident and non- domiciled is exempt from taxes on dividends and passive interest, for a period of 17 tax years.

  1. Tax exemption in relation to gains on disposal of titles

No income tax is payable on gains on disposal of titles such as ordinary shares, bonds and other similar financial instruments.

  1. Nil or reduced withholding tax on certain income received from abroad

Cyprus has concluded double tax treaties with around 55 other countries and many provide for low or nil withholding tax on dividends, interest and royalties and pensions received from abroad.

  1. Exemption from Capital Gains Tax on disposal of real estate situated overseas

    Gains arising from the disposal of property situated overseas is exempt from Cyprus Capital gains tax.

  1. Estate duty, wealth tax, gift tax and inheritance tax

    There are no such taxes in Cyprus. 

  1. Low tax on pension from overseas

An individual receiving a pension from an overseas pension fund in relation to services which were provided whilst outside Cyprus, may choose every tax year to be taxed:

a. Either under normal rates taking advantage of the 19.500 tax free amount or
b. By choosing to be exempted on the first 3.420 euro only and be taxed on the remainder at a flat rate of 5% income tax. Under this method the pension is taxed separately and not added to other income.

If there is overseas tax, there is a possibility to set such tax against the Cyprus tax that emerges from either choice.

  1. Benefits in kind

Some usual benefits in kind which are subject to income tax in Cyprus are the following:

– Accomodation.
– Use of company car for private purposes.         

  1. Social Insurance rates

The Employer has an obligation to register the individual working in Cyprus with the Social Insurance Services as its employee. Both the employer and employee have obligations to pay contributions as stated below:

Employer:
Social Insurance Fund    : (currently 8.3%)   – Subject to a limit
Redundancy Fund           : (currently 1.2%)   – Subject to a limit
Human Resources Fund : (currently 0.5%)  – Subject to a limit
Cohesion Fund                 : (currently 2.0%)   -Without limit

Employee:
Social Insurance Fund    : (currently 8.3%)   – Subject to a limit

(The above limit is Euro 58.080 for monthly paid employees for the year 2022).

There are certain exemptions to EU nationals who wish to continue to pay social insurance contributions in their home country. Please request advice for third countries.

  1. General Health Contributions rates

An individual living in Cyprus is allowed to join the General Health System for medical treatment.
For employees the following rates are applicable:
Employer   – Currently 2.90%
Employee  – Currently 2.65%

The limit of income/salary subject to the above contributions is 180.000 euro per calendar year.

 Advice

 As the above are not exhaustive, we shall be happy to provide advice and further clarity for your particular circumstances.

Marinos Koullapis FCCA
20th May, 2023

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